Oil steady near $74, watching US economy

Singapore, September 20, 2010

Oil was steady on Monday after dropping 3.7 per cent last week, as investors remained on the lookout for signs of sustained economic growth in the US ahead of a key Federal Reserve policy meeting.

US crude for October, which expires on Tuesday, added 13 cents to $73.79 a barrel at 0300 GMT, while ICE Brent for November rose 21 cents to $78.42.

The Federal Open Market Committee (FOMC) will hold a one-day meeting on Tuesday to take a decision on interest rates and issue a policy statement about economic outlook. The Fed is expected to tread water with a renewed promise to keep its portfolio from shrinking but no new steps to ease monetary policy.

'If they lower their forecasts as some people are expecting, oil prices would be pushed down because it implies lower demand,' said Michelle Kwek, an analyst at Informa Global Markets in Singapore.

he front-month US contract reached a one-month high above $78 early last week on expectations of an extended closure of the biggest Canada-US crude pipeline, but prices retreated later in the week in the run-up to the duct's restart on Friday.

US consumer sentiment unexpectedly worsened to its weakest since August 2009, as distress over jobs and finances intensified among upper-income families, the Thomson Reuters/University of Michigan preliminary September reading showed on Friday.

'The data was poor and sets a very weary outlook for consumers,' Kwek said. 'Another major thing is the revival of European sovereign debt concerns.'

The Irish government denied the latest rumours that it might need help from the International Monetary Fund. The Irish Independent newspaper had said the nation was 'perilously close' to calling in the Fund and the European Union.

Canada-US pipeline restarts

Enbridge said it reopened on Friday the key pipeline that carries nearly one-third of Canadian crude shipped to the United States after a leak shut it for more than a week.

Enbridge senior vice president Art Meyer said the 670,000-barrel per day Line 6A ramped up to flow rates scheduled for the day within three hours after restart, but he did not disclose the flow rate nor operating pressure.

A longer shutdown could have started to drain US tockpiles that remain well above year-ago levels, according to the US Energy Information Administration. Stocks stood at 357 million barrels in the week to Sept. 10, 24.6 million above the same week in 2009.

Asian equities saw a cautious start on Monday after US tocks made modest gains on Friday despite the data showing soft US consumer sentiment and the re-emergence of concerns about euro-zone fiscal health.

Japanese markets, which closed at near six-week highs on Friday, are shut on Monday for a national holiday.

Hurricane Karl spared Mexican oil operations from major damage after last week sweeping through the Bay of Campeche, where Mexico produces more than two-thirds of its 2.55 million bpd of crude output.

An area of low pressure located west of the Cape Verde islands had an 80 per cent likelihood of turning into a tropical cyclone in the next 48 hours, according to the US National Hurricane Center. – Reuters